Semiconductor boom will turn to bust

Short sighted semiconductor manufacturers might be counting their racks of doubloons during this year, and raking in the gelt, but next year they’ll be wondering where all that gold dust has gone.

That’s the view of Malcolm Penn, CEO of market research company Future Horizons, who has warned his clients of impending dearth largely due to lack of fab capacity.

He said: “April set the ball rolling for a blockbuster second quarter making what will now be five successive quarters of growth…The real issue now is ‘what about 2011?'” He said the semi market is clearly in a boom and the next phase is bust. He said the quastion is “when, how deep and how fast will it collapse?”

He said the industry needs to put aside intellectual arguments about expanded geographical customer base, broader application range and the smoothing effects these would have. “All that is hogwash. The industry boom-bust cycles persist and will continue to so all the while demand dynamics and measured in weeks and the supply side in quarters, making it impossible to ever balance supply and demand.”

While semi order books are full, people are building up stock and double and triple ordering is in play, there’s just not enough capacity, lead times are getting lengthier and deliveries are stretched.

“Double ordering is not double shipping, yet. For that to happen, supply needs to catch up with demand,” he said.

The unfortunate thing is despite these factors, average selling prices are less than they were before the credit crunch hit and are still falling, except for memories. “If demand exceeds supply, [it is] time to increase selling prices, if not for the economic theory then at least for return in investment,” Penn said. “Time to increase semiconductor prices everywhere. It is absolute business, economic and industry madness to keep decreasing prices in a tight supply market.”

Penn concluded: “Just as with the chip firms/OEM adversarial based business relationship, so too is the equipment and materials/chip firms business model broken. Again, what is needed here is a guaranteed five year rolling order book guarantee – little wonder that under the current system there is so little stomach to support the 450nm wafer transition, not helped by the fact there are too few customers to spread the risks over. The industry has only itself to blame for this mess.”

* Future Horizons will hold its annual mid-term industry forecast seminar on the 20th July next in London. More details here.